Another Plodding Session

The indices were close to flat, breadth was soundly negative and volume was lackluster, which made for a slow day, but a high level of bullishness continues. The term "all-time high" seems to have a magical effect on the mood, even though there isn't much excitement in individual stocks.

What happens in a market like this is traders keep scratching to find ways to put more money to work, and that keeps some bids under the market. It doesn't produce strong momentum, but it does hold things up and helps to maintain the fear of being left out of a market that will never go down again.

As I noted in my prior post, there is a lot of chatter about the upcoming ECB meeting on Thursday. Many pundits believe that the news there will determine the short-term direction of the market. As a result, we should see some positioning tomorrow. The fear is that expectations for aggressive action are too high, but, as we all know, fighting central banks doesn't work too well.

Overall, nothing much changed today as we plodded along with weak action under the surface and celebrated indices making meaningless new highs. It definitely is not a normal market.

Have a good evening. I'll see you tomorrow.

June 03, 2014 | 10:35 AM EDT

Waiting for a Catalyst

I don't expect much action before the ECB decision or jobs report.

The indices are slightly red and breadth is running poorly, but the market is off the early lows and seems to have a little underlying support.

Many market players are waiting for the next catalyst, which many believe will be the European Central Bank's policy meeting Thursday or the May jobs report Friday. Meanwhile, the trade seems to be to buy big-caps and sell small-caps, and that continues to play out.

The one group that is particularly interesting today is semiconductors. Quite often, strength in this group comes near a market top, but given the odd dynamics at work in this market, I'm not inclined to embrace any theory like that right now. Applied Materials (AMAT) is my main play in the group and is making a breakout move on good volume following a recommendation late Monday.

The main story now is how challenging it is to put money to work. That doesn't mean that trades aren't working, but there sure isn't a big supply of them. I definitely miss the old days when a market at the highs would mean I'd be holding as many as a 100 positions. It simply isn't possible to do that these days.

I don't expect the market to do much until the ECB decision is out of the way, but I'll continue to look for small trades to keep it entertaining.

June 03, 2014 | 10:35 AM EDT

Beware of Indifference

It's more dangerous than poor price action

Dip buyers are taking advantage of the soft open and Apple (AAPL) is leading the big-cap technology names, but breadth is negative and there are very few pockets of momentum. The biggest challenge of this market continues to be the choppiness in individual stocks. A few things are working but it is extremely narrow and follow-through is quite mixed. Small-caps in particular have been a slot machine.

The biggest danger in any market isn't poor price action but indifference. We are seeing more of that develop as the indices continue to misrepresent what is really going on in the market and individual stocks act in a lackluster fashion.

Knightsbridge Tankers (VLCCF), which I've mentioned several times in the last couple of weeks, is breaking out nicely on good volume today. Vertex Energy (VTNR), an old stock of the week, is probably the leading small-cap mover recently.

Money has been flowing into bigger caps and I'm trying to play that with a position in Applied Materials (AMAT), which is a Shark Technical Buy this morning. Albany Molecular Research (AMRI), a small biotechnology play, is showing signs of turning back up through $17 on good volume. 22nd Century Group (XXII) is a low-priced, speculative name on my radar.

I'm anxious to do more but the danger of forcing things is too high. We just have to keep on digging and stay selective.

June 03, 2014 | 8:45 AM EDT

Dealing With the Disconnect

Be cognizant of how the market is acting right now.

Three things cannot be long hidden: the sun, the moon, and the truth. --Buddha

All bull markets are not the same. The present market is a particularly good reminder or that fact.

When the indices are making new all-time highs the assumption, particularly in the media, is that investors are engaged in aggressive speculation and celebrating the big gains that are reaping. That was the case in many prior bull markets especially back in 1999-2000. However, since the Great Recession of 2007-08 the nature of bull markets has shifted.

The biggest shift in the nature of the market is due in large part to the growth in ETFs. The market no longer needs individual stocks to lead it higher. The buying and selling of vehicles such as SPDR Dow Jones Industrial Average (DIA), SPDR S&P 500 (SPY) and iShares Russell 2000 (IWM) have replaced speculation in individual stocks. Ten years ago, traders were much more likely to be trading individual stocks rather than various index ETFs.

The consequence of this is that we have days like yesterday where the major indices moved higher and created the illusion of strength. Yet under the surface, breadth was negative and the action in most individual stocks was lackluster.

If you are a stock picker looking for action, it is very frustrating market and there is little correlation between the indices and speculative action. What makes it worse is the media's insistence that it is a great market making new highs. Yes, that is the case and it is good news for investors who have their 401ks and the like allocated to broad equity exposure.

A big part of the battle between bulls and bears right now is that the two groups are looking at different things. The bulls are rightfully excited about the action in the major indices, which look quite good despite the low volume and some overbought readings. On the other hand, the bears are complaining about the lack of quality leadership and the poor technical condition of many stocks. The overall market looks very different when you look at it through the lens of individual stocks.

The big question is how do we deal with this? Many market players simply stick to ETFs now. Riding the SPY, DIA and similar vehicles has worked well and you don't need to bother with those annoying individual stocks that don't seem to recognize the fact that it's a bull market.

As a stock picker, I continue to keep looking for opportunities but I am feeling quite frustrated lately. A few things work but the action is narrow, choppy and thin. It has been extremely difficult to put money to work. Many others are experiencing the same thing and they end up putting money into ETFs just so they can be invested.

The most important thing you can do is to be cognizant of the way in which the market is acting. There is a major disconnect between the indices and individual stocks and simply recognizing that fact will help us better deal with this market.

We are seeing some minor early weakness this morning. We are likely to have a slow day in front of the upcoming European Central Bank (ECB) meeting, which is expected to produce some significant news on Thursday.

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